Wednesday, January 19, 2005

The Role Of EGS In Employment Policy

A basic objective of economic & social policy is to ensure that all able bodied citizens are provided a job at the prevailing market wage for unskilled work. Faster economic growth and employment generation will in a decade or so eliminate underemployment and disguised unemployment. Labour market reforms are essential for generating higher productivity organised sector jobs at a faster rate. An Employment Guarantee Scheme can play an important role as part of an overall reform of labour policy and government expenditure on poverty alleviation & rural development.
Because of our rigid labour laws, the employment elasticity of registered manufacturing (8% of labour force) has declined. Many new industrial facilities are designed to minimise use of labour and exporters prefer to set up labour intensive export facilities in competitor countries. The ID&R Act and its procedures need to be reformed to make it possible to remove corrupt, disruptive or lazy employees (* for details). The scope and reach of the IDA, which was arbitrarily extended during the emergency should be restored to its pre-emergency state. Chapter IX A, intended to promote voluntary consultation when trade unions in their infancy has become a virtual veto should be deleted.
One of the keys to the generation of high quality internationally competitive jobs is specialisation (including in services). The Contract Labour Regulation and Abolition Act was intended to regulate contract labour. Section 10 that came to be interpreted by courts to mean mandatory abolition must be modified to allow outsourcing of all services so as to encourage firms to specialise in, train labour for and improve productivity in each activity.
A comprehensive system of private pension/provident fund, centred on the individual will improve labour mobility. The system must be portable with benefits moving with the individual as (s)he changes jobs or organisations. It would be fully funded, with any employer contribution deposited into the individual retirement account. It must have modern and flexible investment regulations, which allow the build-up of a broad portfolio including higher risk-return assets like equity and private debt. It must ensure application of efficient governance structures and management so that the worker has access to the same returns that are traditionally available only to the wealthy.
Health insurance should be opened to greater competition by allowing 100% FDI in this sub-sector, it should also be integrated into the system in such a way that employees who move to another job continue to enjoy benefits during the search period and can carry any unused benefits to the new job.
The poor cannot afford to be unemployed while the better of spend a lot of (out of work) time searching for jobs. A web-based national electronic labour market should be set up by modernising and upgrading the national unemployment register. The system should generate and display an inventory of skills, from both the demand and supply side. The National Renewal Fund should be strengthened to assist in re-training and relocation of employees to increase the mobility of labour.
A unified labour code would be useful for unorganised workers if it deals with work conditions such as age of entry, hours of work, health, safety & welfare at the work place (maternity benefits, compensation for injuries & health insurance). In contrast a law that controls hiring & firing or sets minimum wage above market rate would merely open further avenues for harassment & corruption. Employers of unorganised workers should get a tax deduction for pension & health insurance contribution for workers.
Over the last few decades there has been a proliferation of poverty alleviation and employment generation schemes. Each has its own administrative infrastructure and works relatively independently. These schemes are commonly believed to deliver only a fraction of total expenditure (15%?) as benefits to the intended beneficiaries. There are also numerous schemes for building local infrastructure. An Employment Guarantee scheme (EGS) would be ideal if all these other schemes are eliminated and the funds allocated to a National EGS. By integrating infrastructure building, including watershed development and water harvesting, at the Panchayat and block level, in the EGS, effectiveness could be greatly increased. The scheme must be counter-cyclical in terms of district/region wise seasonal demand for unskilled labour. Wages paid should be based on average off-season market wages, which would be designated as the minimum wage for that district/regions EGS. It should incorporate a transparency clause, which requires supply of information on people hired, time spent and wages paid.
Information access is critical to increasing the value that reaches the poor. The Official Secrets Act virtually prohibits civil servants from giving any information to the public, by providing a stringent penalty for ‘unauthorised’ disclosure. It should be replaced by a Right to Information Act that carefully delimits the areas (e.g. foreign affairs, defence plans, strategic R&D, personal files) to which secrecy needs to apply. It would be designed to give the public the right to information about decision & actions that affect their lives. This must include every item of expenditure (small or large) made in the name of the poor, the weaker sections, scheduled castes and tribes. It must also include the various permits, licenses and permissions given to the public at the municipal and block or district level, so that they are available for public inspection.
Stable, high productivity semi-skilled jobs can be generated at a much faster rate if labour laws & rules are made more flexible. Faster economic growth and employment generation will in a decade or so eliminate underemployment and disguised unemployment. In the meanwhile, we need a simple well-focused government program, which is financially sustainable. The employment guarantee scheme can play a critical role if it integrates and replaces the plethora of rural development and poverty alleviation schemes. Even the most extravagant EGS cannot, however, be a panacea for all the ills of the poor. If it is just another add-on to the numerous schemes introduced over the past 25 years, its success is unlikely to be significantly greater than that of previous schemes.

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